A Cabinet resolution last Friday established an Ad Hoc Supervisory Board
of the State Savings Bank of Ukraine. Perhaps under different circumstances
- i.e., if the government were not in a state of constant financial trouble,
if business people placing their election bets did not demand a buyout,
and if Ukraine had a viable banking system - this event would attract little
attention if any. Moreover, this "strengthening of the management" would
fit into the logical pattern of measures aimed at reviving the financial
sector and would probably warrant an incentive credit from the World Bank
(since restructuring the Savings Bank is one of the conditions of another
EBRD financial sector adjustment loan tranche). However - and the astute
reader must have guessed as much - there is more to the Cabinet's move
than meets the eye. But to everything a time.
The Savings Bank is one of the top seven Ukrainian banks. Last year's
results showed that it controls about 53% of the national banking system
and that over 60% of the individual deposits were with the Savings Bank.
In other words, Savings Bank is not just an ordinary bank. And the fact
of the broadest fund-managing powers being vested in its management by
campaign-burdened politicians from the Finance and Economy Ministries,
State Property Fund, and Presidential Administration, the list being topped
by the Premier, cannot but make one wonder. Under the resolution, the Ad
Hoc Supervisory Board will, among other things, determine the bank's guidelines
in terms of deposits, credits, interest, and investment; size and sources
of the statutory fund, membership of its board, appointments and dismissals,
bylaws, personnel, salaries, and profit allocation procedures. Note that
Savings Bank is the only bank allowed to conduct operations without NBU
licenses (in other words, it does not have to worry about their revocation
in case of transgression/default), because an NBU Board resolution rules
that Savings Bank activities are determined by its statute. As for changes
in the statute, they will be introduced and approved by the Supervisory
Board.
So what is there about this bank that made the authorities appoint a
special supervisory authority to keep all its moves covered? The Savings
Bank was established based on the Ukrainian Republican Office of the USSR
Savings Bank. It was officially registered with the National Bank of Ukraine
in December 1991. As of 01.01.99, its statutory fund amounts to UAH 10,685,000,000;
UAH 1,595,000,000 worth of equity, and UAH 1,167,000,000 worth of assets.
At the beginning of 1997, the press discussed coming Savings Bank reform.
Specifically, it was expected to be reorganized as a joint stock company
with 100% government interest. This transformation of a state enterprise
into a joint stock company would mean that the bank would become a market-type
financial institution, ridding itself of bad debts, closing unprofitable
branches, dismissing redundant personnel; in short, it would operate by
the same rules as any other commercial bank.
Naturally, the 1998 crisis was not the time for the government to carry
out this reform. In the meantime, the Savings Bank, not bothering to develop
mechanisms allowing reductions in expenditures and losses rooted in the
recent socialist past, continued to accumulate them even after the crisis.
Unable to reduce general economic risks and develop a credit policy (which
is a common bank priority), the Savings Bank, as all the other larger Ukrainian
banks, chose to create a "closed business" model, collecting maximum possible
assets, investing them in internal government bonds, and crediting structures
placed under government control, as instructed from on high.
Unfortunately, Ukrainian banks are not enthusiastic about advertising
their credit policies, so one can only make assumptions, using indirect
evidence. Thus, answering a question about where exactly the Savings Bank
puts the lion's share of its citizens' deposits would not be easy. Presumably,
this money was used to acquire government securities (at best!) which the
government then refused to redeem. Or that the bank never received some
UAH 3 million due it from another bank, and that now its assets (or fake
assets) will be replenished by 30-35% shares of the joint stock Banking
House. One of The Day's experts believes that the real share of
many times re-credited, spent and insecure deposits (i.e., direct accumulation
of bad debts) is constantly rising, making up not 10-15% of the banks portfolio
as alleged by them in their reports, but well over 40-50%. That same expert
thinks that, should the Savings Bank be exposed to increased pressure from
upstairs, and if the Cabinet decides to turn it into an investment bank,
its losses will multiply.
For the time being, to recompense such losses, those in high offices
think up all kinds of innovations. At the beginning of April, NBU introduced
the practice of State Treasury remittances of wages due budget-sustained
and Treasury-serviced organizations to Savings Bank accounts. This measure
is not likely to make up for loss of resources if the government really
gets hold of the bank's citizens' deposits as the cheapest source of "live"
money.
Lest anyone accuse this author of bias, it should be pointed out that
everything stated above ensues precisely from economic arguments pointing
against the Savings Bank's subordination to the Cabinet and its officially
stated aim: increasing credits financing production projects. Question:
Is the whole thing worth risking people's hard-earned savings and the banking
system's stability? Has anyone asked any of the bank's customers whether
they are prepared to assume investment risks when depositing their money?
The decision-makers are not likely to have bothered their heads about this;
otherwise they would have long been informed that people placing short-term
deposits are resolutely against taking any risks. Moreover, assuming that
the government wants to use this short-term money for long-term investments,
the Savings Bank is in for a crisis and there is practically no way to
prevent it.
In a word, the prospects are grim, indeed. If the Savings Bank collapses,
so will the banking system. In fact, the Savings Bank should be prohibited
from conducting any investment operations. Its policy is inherently conservative,
meaning no financing of "political" government projects (political, because
these projects cannot be otherwise). Should this not be the case the Savings
Bank will join the ranks of all those other banks used not only to ill
effect but to the chagrin of an army of cheated depositors.
By Iryna KLYMENKO, The Day






